1. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–12–1 Chapter 2 International trade in goods and services

2. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–22–2 Lecture plan Changes in merchandise trade patterns – changes in value, volume – reasons for changes in trade composition – processing trade – intra-industry trade – prices trends Services trade patterns – changes in product composition – leading players

3. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–32–3 World exports growth, by value (merchandise and services) Value (US$b.) Annual change (% p.a.) 2004 1990– 2000 ‘01‘02‘03’04 Merchand- ise 88806.0–4–451721 Services21006.0071316 Source: PRESS/401,14 April 2005

4. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–42–4 Annual real growth rates of world merchandise exports and production, % Source:adapted from WTO International Trade Statistics 2004

5. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–52–5 International merchandise trade value vs volume (Table 2.1) Value growth factors – physical demand – variations in international prices – product mix and product quality – exchange rates (‘the valuation effect’) – capital flows and trade policy Volume growth – e.g. measured at constant prices and exchange rates – more realistic expression of trade growth

6. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–62–6 Product composition of world merchandise exports, (% by product group) Source: adapted from GATT Annual Reports 1987–88, WTO International Trade Statistics 2004

7. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–72–7 World manufactured exports as % of world merchandise exports, 1990, 2003 Source: adapted from WTO International Trade Statistics 2001 and 2004

8. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–82–8 Recent trend: ‘processing trade ’ Preferential tariff duty-free access to those imports bound for processing and assembling of goods destined for exports About 850 ‘export processing zones’ Mixed success in expanding trade and employment Value varies from US$0.7 billion in Bangladesh to US$104.6 billion in China On the way down in NAFTA

9. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–92–9 Recent trend: ‘intra-industry trade” Exchange of the same category of products T = 1 - I X - M I / (X + M) Reasons –trade takes place in differentiated products –economies of scale (which require a limited range specialisation)

10. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–10 Leading global exporters of services, 2003 (Fig. 2.4) Source: adapted from WTO International Trade Statistics 2004

11. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–11 Leading services traders  Eight of the top 10 exporters of services are also among the world’s top 10 exporters of goods (only Spain and Hong Kong are not)  EU (15): about 40% of world trade in services  US is largest individual exporter(16 %) and importer (12.5%)  Share of developing Asian countries in world’s services exports up from <10% to about 15% - China, up by 17 places from 26 to 9 - Hong Kong, China and Spain (up 3 rankings each)

12. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–12 International prices trends Long-term downward trend in relative prices of most primary products Consecutive declines of international manufactured prices over 1996–2001 –inflation receded worldwide to 1960s levels –office and telecom equipment: strong decline in prices, high exports volumes –firm US dollar over last years, which led to dollar price decline for those goods traded at nearly stable prices in depreciating currencies

13. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–13 International prices trends cont Prices of manufactured goods rose nearly 10% in 2003 (along with prices of farm products), the first annual increase since 1995. Commodity prices and exchange rates changes led to a 10.5 strengthening of all internationally-traded goods in 2003.

14. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–14 Terms of trade Terms of trade index = export price index/ import price index x 100 - TTI > 100 favourable - TTI < 100unfavourable - TTI = 100 unchanged

15. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–15 Terms of trade index, 2001 (1995 = 100) EconomyTerms of TradeMovement 1995 – 2001 19902001 USA9899 unfavourable Japan9188 unfavourable Australia117105 favourable New Zealand103106 favourable Hong Kong101102 favourable Thailand10278 unfavourable Singapore11192 unfavourable Source: adapted from World Bank Development Indicators 2004, Table 4.4

16. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–16 Share of world merchandise exports, by region, 1983, 2003 Source: adapted from WTO International Trade Statistics 2004

17. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–17 Merchandise trade recovery in Asia (5)*, 1997–2000 * Indonesia, Korea Rep., Malaysia, Philippines Thailand YearExports (% p.a.)Imports (% p.a.) 19975.1 -3.1 1998-3.5-30.9 199910.2 15.1 200018.527.9 Source: adapted from WTO data

18. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–18 % Share of main regions in world merchandise imports, 1983, 2003 Economy % share 19832003 North America17.820.5 Latin America 4.5 4.8 Western Europe40.142.0 Eastern Europe 8.4 5.0 Africa 4.6 2.2 Middle East 6.2 2.5 Asia 4.518.5 Source: adapted from WTO International Trade Statistics 2004

19. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–19 Reasons for changes in trade patterns Engel’s law Price trends Technological developments Multinational enterprises Regional trading blocks

20. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–20 Merchandise and services as a percentage of world exports 1970198020002004 Merchandise8183 81 Services1917 19 Source: adapted from WTO data

21. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–21 Exports of commercial services by category, %, 1990, 2003 Source: adapted from WTO International Trade Statistics 2004

22. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 2 2–22 Services trade in developing countries Services—a protected sector –balance of payments considerations –support for indigenous providers of services Arguments pro protection –indigenous firms are too weak –abrupt liberalisation would eliminate domestic firms Arguments against protection –transfer of skills –more competition, better quality of service